Avoiding The Startup Stall-Spin

I’ve spent the last several years working with early-stage technology startups. More often than not they fall into one of these two categories:

They have an “idea” and are trying to raise money so they can hire somebody to help them realize it.

They already have some money and are trying to find a “technical person” who can “build it”

Let me say it now — if this sounds like you, you are probably already doomed. Seriously. Stop now and go back to middle management, or start your efforts over from scratch. If you stick on the current path you WILL fail. Here’s why.

Mercenaries Are Not Paid to Care

If you are trying to build something, you presumably care about it and think it is worth doing. (If you don’t really care about it but just think it can make money, you should stop reading my blog altogether.)

If you can’t make other people want to join your team simply on the basis that they like your vision (and like you) then you are going to be faced with “hiring” someone to “build” your vision for you.

And that person is not paid to care about your vision. Free agent programmers, while they may be consummate professionals and quality engineers, will most often build exactly what you tell them to build.

There are three major problems with this:

You probably don’t know what you want to build.

You will probably do a very bad job of describing what you want to build.

You will spend most of your capital building something that no one actually wants.

And when the “prototype is built” and the “programmer” hands you the keys, who is going to maintain the code? Who is going to make ongoing structural adjustments to reflect the needs of your customer?

How will you identify and collect the metrics that will inform your business decisions?

Most entrepreneurs give fuzzy answers here, like “we’ll raise money on the prototype,” or “we’ll hire someone once we have revenue,” or the most laughable answer of all, “we’ll outsource that.”

The bottom line is that there is no substitute for TEAM. And there are lots of creative ways to build teams, but it has to start on day one.

Why Entrepreneurs Fail to Build Teams Early

Isolation: most novice entrepreneurs exist in some kind of vacuum, limited to their social circles from their previous jobs, schooling, or professional discipline. As an example, many smart “businesspeople” simply don’t know any good “programmers.” Good startup teams emerge from relationships that already exist. And if you don’t have relationships with people that can help realize your vision, odds are you also haven’t asked them what *they* think of the idea. That can be incredibly revealing and instructive.

Inexperience: novice entrepreneurs are, by definition, new to the game. They don’t know that founding teams don’t come from “help wanted ads” for “incredibly talented programmer who will build my crazy web service.” They simply don’t know. Memo: this is not how it happens.

Negative Reinforcement from past experience: Many entrepreneurs and experienced business people alike have exactly one idea of how to “find people,” and that is to “find someone” who can “do the job.” And since jobs are paid for by money, they assume that funding is important so the firm can “hire people” to “get the task done.”

I don’t give a @#&%& about your opinions — build what I want you to build.

You are replaceable.

And when you do hire someone on these terms, you get what you ask for — someone who will leave you for something that pays better (and who probably left something else to go bleed you dry).

The Startup Stall-Spin

As a pilot, I sometimes use flying analogies. A stall-spin, if you have never heard the term, is a dangerous situation: the plane tries to climb upward too steeply, loses lift, then begins to fall, spinning nose-first straight down towards the earth.

Often in the fall the pilot will incorrectly try to adjust the wings to “steer” the plane back into control, but at that point there is almost no air flow over the wings and this action makes the spin even worse. The only correction the pilot can make is to adjust the tail rudder to stop the spin, and then the plane will begin to regain lift and maneuverability. Often a pilot will lose over 1,000 feet of altitude in a stall-spin correction and it is certainly dangerous; for a pilot that encounters a stall-spin without some training and awareness, it is very often fatal.

Entrepreneurs need similar training to avoid (and, less preferably, correct) the “startup stall-spin.” Here’s what it looks like.

Entrepreneur has some “idea.”

They get a programmer to “build it” at considerable expense.

It is released to the public and is met with lackluster response by the market.

Revenue projections are missed.

Morale suffers. Everyone from employees to investors to strategic partners suffer a loss of confidence.

Funds are depleted. Required product changes are delayed until funds can be secured.

Original mercenary programmers lose faith in the effort and may even badmouth the entrepreneur.

New programmers become reluctant to join the effort.

The project becomes toxic and burns and dies. Everyone loses money.

There is only one way to recover from this, and that is to correct the original mistake: instead of hiring mercenaries, restart the effort from scratch with a real technical cofounder.

And here’s the kicker: if you can’t find one, you’re going to fail. Also, if you don’t do it before #3 (dealing with lackluster market response by making modifications) you will also likely fail.

And here’s why: you can never hire someone who will care the way a cofounder will care. And if you can’t find a cofounder, stop — unless you can get to a point where you’re generating revenue all by yourself.

Many of you may be saying, “I tried to find cofounders, but it was hard.” And it can be. And I will address that in my next post.

Meantime, I hope you give some thought to the “startup stall-spin” and how you can avoid it. In an airplane, you try to avoid stall-spins by avoiding stalls entirely. It is no different for a startup. Because recovery from that error, while survivable, is risky — and terrifying. Only a solid team of committed cofounders can keep you out of trouble!

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http://blog.cahootsapp.com/ Brian Sierakowski

Really interesting, I've had the question way back in the back of my mind for Cahoots: If we're in the business of getting teams together, are we ultimately doing a disservice to the entrepreneur? Put more in context of your post, is the act of building a team or raising capital important because you need a team and capital, or is the ACT of BEING ABLE to do both the real benefit?

I'm not 100% sold on that, and I think that maybe we've had to have the social skills to build a team because there hasn't been a better solution (crafted by awesome dudes who (think) they know what they're doing!) It's a bit like what RSC is doing with funding.

I've had two thoughts on solutions for this, one being the founder dating type event that we're going to be putting together to get people with ideas in the room with people that have technical talent and want to build something (we have a lot of both), and on the larger scale longer term, having Cahoots get people with matching needs and services together.

What are your thoughts on these approaches (or at least the founder dating event, as Cahoots is untested and destined for success)?

http://www.metamorphblog.com Matt Mireles

Having been in this position before, I think you're missing something critical: It's WAY easier to find awesome people when you already have something built!

Hiring a mercenary developer to build your site/app/whatever is definitely suboptimal, but it gives you something to leverage when you go hunting for a real technical co-founder. Baby steps, my man, baby steps.

http://twitter.com/davetroy Dave Troy

Matt, a prototype can definitely attract a strong technical cofounder. Two things to guard against here: first, don't spend too much on the prototype; second, be sure it's built in some way that your 'target' technical cofounder likes and respects.

Many programmers are loath to follow another programmers' design decisions, and will suggest that you “throw it out and start over using X,” and that is often sound advice.

However, if you've invested too much in the prototype, you won't want to throw it out, and they won't want to work on it. And the stall-spin begins…

So IMHO the best advice is to find relationships first and then build from there.

http://www.metamorphblog.com Matt Mireles

Yeah, the more I think about this post, the more I disagree. Founders need to start and make progress as soon as humanly possible, even if it takes going to a fucking college job fair (which I did) to find talent. The more progress you make––including the mere appearance of progress, which is often good enough––on product, on press, on talks with investors, etc., the easier it will be to find a real co-founder.

You're right, oftentimes non-technical founders are socially silo'd off from tech circles. Yet until you have a product,even a shitty one, it's going to be hard to attract anyone worth a damn. Getting v1.0 out the door is a place to start, and using mercenaries is OK to get there so long as you understand that hiring a mercenary development force is not a viable long term solution. But founders need to be told to found, they need to start and learn and ALWAYS KEEP MOVING FORWARD, which is not the take away that people are going to get from this post.

Yes, you need a co-founder to build a long term company, but NEVER EVER let that stop you getting started.

http://twitter.com/davetroy Dave Troy

Overall I'm biased against raising capital for most startups. Ideally, you can find a group of 2-4 founders who can eat ramen for a year and build something that actually gains some market attention.

Capital should ideally only be used to amplify something that's already working. So, if the market is responding to something, throw more money at it. That only makes sense.

The reality is that it can be hard to find 3-4 people to eat ramen for a year, and sometimes you need more like 6-8 people, and that can be very hard to find. So, finding some kind of financing to make up for that reality is sometimes necessary, but we should always remember the ideal.

Also I think a strong team can always raise capital.

That aside, I think there's no substitute for relationship building in finding cofounders, and I'll talk about that soon. But things like Beehive, Founder Dating, networking events of all kinds, etc, help nurture passive relationship building over time that will yield startups (and strong teams) in unexpected ways.

Success is when it starts being more about cool people chasing ideas that excite them rather than people raising other people's money to hire people they don't yet know.

http://twitter.com/davetroy Dave Troy

While I agree that moving forward is a good idea, the empirical evidence I've observed is that most people overestimate the importance of a prototype and pay too much to do it. And it boxes them into a corner. I can't tell you how many people I've coached down off of this wall.

That said, if you can build a prototype cheaply without draining your resources, and you can do it in a way that doesn't alienate a future technical cofounder, great – do it. I'm just saying most people fail badly at this.

What I am suggesting is that entrepreneurs need to spend more time cultivating relationships so that when they do decide to move forward, they're doing it with people who are as committed to the core idea as they are. From what I've observed, this is a much more successful strategy.

It may be possible to succeed with raised capital, mercenaries, etc, but that almost always ends in disaster. I can point you to those people and you can ask them how well it worked.

http://www.metamorphblog.com Matt Mireles

At least in the stall spin you have altitude to lose! Your advice seems to be “don't even try to get off the ground.” This bothers me.

Who cares if you throw the prototype out? Who cares if you switch from PHP to Rails? That's all sunk costs. The only thing that matters is that you make progress, build the team and get customers.

Case in point: SpeakerText. My original co-founder built the site in PHP and the app in Flash. The product kind of sucked, but there were some cool features, it got the idea across and we used it to get some good press. He ultimately wasn't ready to commit and we did the whole stall spin thing you describe (although we parted ways amicably and he still helps out from time to time). Burned through some cash, our angel round imploded, etc.

HOWEVER, I was able to leverage that initial momentum and press to build relationships with the top angel investors in the world and ultimately find long term technical co-founders. The three of us have been living together for the last two months and have rebuilt both the site and the app from scratch, now using real hardcore technology that we built ourselves. And it is going to be awesome.

Was it a perfectly optimal upward trajectory? No. But if I didn't try it, I don't think we would have ever gotten off the ground.

http://www.metamorphblog.com Matt Mireles

Oh I'm definitely with you on the do it cheaply thing. One of the things we did was hire college students at job fair to do freelance work. Paid them in iPhones. This allowed us to “try before we buy” and build relationships at low cost. Ultimately, one of the college fair hires grew into a genuine co-founder. Now we live together and he's the company treasurer.

I guess the big thing i've seen non-technical people miss that you nailed is the importance of cultivating long term relationships. No one wants to be the hired help in a startup––they want to feel ownership, and I definitely agree that lots of people miss out on this and think they can get away with not sharing.

http://twitter.com/davetroy Dave Troy

I'm not saying don't try to get off the ground. I'm saying don't be stupid about it and take bets you can't afford to lose.

I agree that the only thing that matters is that you “make progress, build the team, and get customers,” to an extent.

But suppose you ultimately don't get customers? Suppose you overpay to build something no one else will work on? That's a far too common story.

And when those folks stall-spin, they hit the ground hard and can't recover, primarily because they don't know how.

Matt, I think you have all the right instincts about what to do and when to do it, but so many don't. All I am saying is if you want to weather the storm, most people will have a better time with a strong technical co-founder as part of their team — which might even be a team of one to start with.

Just because you survived your own stall-spin doesn't make it ideal. 🙂

However, you did learn from it and are sticking with entrepreneurship. Too many go through the same experience and get turned off — never to start a business again.

I think if we want to make entrepreneurship a cultural norm, we need to focus a lot more on relationship-building. Ultimately that will mean less severe stalls and more people being successful at it. Right now it's just something people survive. 🙂

http://www.metamorphblog.com Matt Mireles

Fair enough. But I come from NYC where all my friends are desperately looking for and would LOVE to have a technical co-founder off the bat, but can't find them because the supply of tech talent is soooo short.

http://twitter.com/davetroy Dave Troy

Matt – been thinking about your comments and wondered if you would like to write a “counterpoint” post to mine.

I think you make some very good points about what it takes to make the process you went through survivable.

I think in combination with my other post it would tell both sides of the story very well and serve my original intention of keeping people out of an uncontrolled death-spiral.

You up for it? You could post on your blog and I could cross post here as a guest post.

http://www.metamorphblog.com Matt Mireles

sure. I'd love to, although I'm packing up a uhaul and moving to California with my cofounders on wed. not sure if i'll have time before that.

Brent

I keep meaning to write some sort of blog post about the tension between the desire to start a company with a big team and the difficulty in convincing a large number of people to actually join a start-up absent fund-raising validation.

For investors, who should generally be accredited, convincing them to invest some small portion of their net worth, or in the case of a VC, a couple of dollars that he was planning to invest anyway, seems like a much lower hurdle than convincing a colleague to quit his guaranteed income to go without income for a period of time. He is giving you 100% of his capital because that is what he has to offer.

Huge risk for people.

Convincing people to join your company – people would have to be nuts to take on such risk – is an incredibly good mechanism for convincing an investor that an idea has merit because the people that joined the idea originator took far bigger risks than the investors will ever take.

Hence, “finding a co-founder” after the idea is originated is incredibly hard. People participating in the act of creation have part of the buy-in necessary to actually do something. People found after the fact are being “sold” the idea. This is harder to do.

Better to befriend engineers and then come up with the idea than come up with an idea and then look for a co-founder.

(Even this comment is poorly written. No wonder I haven't cranked out that blog post yet. Excuse the low quality of the comment, but there is a nugget of something here.)

http://www.howtolaunchastartup.com Akshay

Dave – your article has impeccable timing. I had to recently decide between completely shutting down the development of my startup idea and hiring a team when my original co-founder did not pan out. I went with the latter and am in the midst of development. So far so good. I think one caveat is also what kind of developers are hired, I find that mine are very collaborative to my vision, not very expensive and only took up my project because they found it really interesting.

This is the route that Matt mentions and I do think that I will end up following his path. Although I am hoping that the launch will be successful and that this will automatically attract some quality technical co-founders, I don't expect this fairy tale to come true. What I am hoping for is that having a completed prototype and a bit of market response etc will make it much easier to actually reach out to people who could become co-founders. In the meanwhile I can continue to build the project using my mercenaries.

http://twitter.com/BeeRich33 Rich F

Great article. I can't tell you how often I see this happening. They have little money, they aren't developers, they have little or no business experience…or all 3.

Use Omnigraffle for prototyping. In this day and age, people know how websites look and behave. If you're talking to money people that don't understand these, then run away quick.

http://twitter.com/BeeRich33 Rich F

Barring obvious issues associated with specific languages and approaches, you might want to reduce the compliance of candidates by removing any specificity for a language. Today's languages are polished and advanced. If you support the developer(s) and their choice of language, then the shortfalls can be made up with scaling. Acceleration these days with cheap hardware can open up a bunch of opportunities during team building.